ARAFAT SUPPORTS IRAQ-BUT DECISION MAY COST HIM AND THE PLO

Of all those who have gambled on Iraq`s invasion of Kuwait, the Palestine Liberation Organization may have pushed its luck too far.

If Iraq loses, the PLO will lose heavily.

And PLO leader Yasser Arafat, by siding with Iraqi President Saddam Hussein from the start of the crisis, may have taken the step that could lead to the end of his long tenure as the Palestinians` leader and figurehead.

''It is a tactical mistake,'' said William Quandt, a Middle East analyst at the Brookings Institute in Washington and a former foreign affairs adviser to President Jimmy Carter.

''If Saddam Hussein doesn`t prevail, it will cost him (Arafat).''

The PLO`s slant in favor of Hussein stood out at the Aug. 10 Arab League summit in Cairo.

While 12 of the Arab leaders voted to condemn Iraq`s seizure of Kuwait on Aug. 2 and to set up a joint force presumably to help Saudi Arabia defend against an Iraqi invasion, three nations expressed reservations, two abstained and three rejected the resolution: Iraq, Libya and the PLO.

After the Egyptians announced the count, PLO officials claimed that they had actually abstained, and were waiting to present their own proposal. Whatever happened, the image was cast. The PLO had done the Iraqis` bidding.

The stakes are high for the PLO because it is gambling with what it needs most for its existence-political and financial support from the Arab world.

The Saudis and other oil-rich Persian Gulf nations have helped bankroll the PLO. While other Arab nations increasingly have broken their financial promises to the PLO, the Saudis have not.

Besides direct donations to Palestinian institutions in the Israeli-occupied West Bank and Gaza Strip, the gulf states collect a 5 percent annual tax for the PLO on the estimated 700,000 Palestinians who live and work there.

The Saudis and the other gulf sheikdoms likely will punish the PLO by cutting off their financial support. They also could make life difficult for Palestinian workers, who are distrusted and feared by the gulf`s conservative rulers.

This, in turn, will affect many Palestinians in the financially depressed West Bank and Gaza Strip, who rely on the money earned by their relatives in the gulf states.

The PLO, by aligning itself with Hussein, also seems to be rejecting the appeals for moderation and diplomatic maneuvering toward a peaceful solution in the Middle East that Arafat endorsed in November 1988.

Hussein is no mystery to diplomats. His talk of scorching Israel`s earth if Iraq is attacked excites the Arab masses, but it absolutely freezes any diplomatic stirrings towards an Arab-Israeli solution.

To Israeli Prime Minister Yitzhak Shamir and his government, the PLO`s latest moves are an unexpected gift. For months, Shamir and other Israelis have complained that the U.S. was blind to the PLO`s intentions.

Now, Israel can claim that the PLO is truly a terrorist organization because of its association with Hussein, and that the U.S. should put aside any thought of renewing its talks with the PLO, which it halted when a group of PLO fighters attacked an Israeli beach in May.

Ironically, PLO leaders in the occupied West Bank and Gaza had set 1990 as the year they would win over the Israeli public. They admitted that one of the failures of the uprising, or intifada, was that they had not been able to convince the typical Israeli that they were truly moderates.

The loss of ties with the U.S. could be a blow to the PLO`s self-image. While they angrily accused the U.S. of not accepting them as negotiating partners, PLO officials still were delighted when relations with the U.S. were restored in 1988 after a long hiatus.

Considering the risks, it is fair to wonder why the PLO took the chance of siding with Iraq.

The answer lies in PLO internal politics, its deep financial troubles and the appeal of a strongman like Hussein. While he infuriates Westerners, Hussein makes some Palestinians in the Middle East feel strong enough to thumb their noses at their enemies.

For the last few months, there has been a bitter debate within the PL0 about Egypt`s efforts to cajole it into what some leaders see as unclear talks with the Israelis. These factions want to be under the wing of a stronger, more assertive leader like Hussein.

The PLO`s leaders have been troubled by a growing despair in the West Bank and Gaza Strip as the hardships imposed by the uprising continued to mount. They saw the frustration of the 1.7 million Palestinians leading in two disastrous directions: Islamic fundamentalism and rejection of the Tunis-based PLO leadership.

The PLO began to talk with Hamas, the extremist Islamic movement in the occupied areas. But PLO leaders said privately they never give Hamas the kind of power over the PLO that it demanded.

Then Hussein restored Palestinians` pride by threatening the Israelis, who appeared to take his threats seriously. The PLO was not deaf to the roar from the street as Hussein talked.

He also welcomed the PLO to Baghdad. Tired of their exile in Tunis after their eviction from Beirut by the Israelis eight years ago, PLO leaders quickly found Baghdad a more familiar Arab capital.

But one lesson the PLO should have learned is that it always suffers when it gets caught on one side or another in an Arab squabble. Arafat has made a career of balancing the various PLO groups and countries against each other.

Now that he has broken his own rule, he and the Palestinians may have to pay a heavy price.